Which Improvements will Increase the Value of Your Home?

Lately, I've been writing quite a lot about our renovation journey in the condo.  When we decided to stop renovating, it was entirely motivated by the return on investment that I projected for us upon resale: We knew we wouldn't make our money back, so we accepted that we would not be able to complete the look of our current home.  This was our decision and many people would have decided to go ahead with their improvements anyway.  In many cases, it depends on how long you plan to live in your home and how your quality of life might be impacted by choosing not to renovate. 

We are confidant that we made the right decision in our case, but today I'm going to indulge those of you who like to think of your home as an investment, and discuss some renovations that DO and DO NOT offer a good ROI (return on investment).  Keep in mind that the specific return will depend on your market, area and type of house.  For example, a fully upgraded and modern kitchen with all the "bells and whistles" may not drastically improve the value of a home in a lower income area.  There are also some interesting examples of renovations that are surprisingly impacted by the area.  More about this in a minute.

Let's begin with the improvements that DON'T pay: Zillow just released a list of The Top 5 Home "Upgrades" You Should Avoid.  Keep in mind, that "avoid" is a strong word but you should at least consider whether the cost of a renovation is worthwhile to you even if you will not make the money back on resale.

1. Built-In Aquariums (not surprisingly) top their list.  An aquarium is expensive and difficult to maintain and built-ins to most buyers would just be something they would need to pay to remove.  You are unlikely to find another "a-fish-onado" (couldn't resist) to purchase your home.  I also always wonder what people with these huge aquariums do with the fish when they move?  Do they consider the fish to be pets or part of a built-in fixture?
2. Built-In Electronics are also up there.  This obviously includes Home Theatres although this may depend largely on the size of the home.  While most buyers would likely consider them a waste of space in a 3 bedroom bungalow, they may be an added perk in a mansion.  "Man Caves" are not mentioned in the article but they are becoming increasingly popular in our market.  It will be interesting to see what happens in a few years when we start to see them in homes that are listed.
3. Eliminating a 3rd or 4th Bedroom is a no-no.  I would very rarely suggest that a client consider combining two rooms since it just doesn't look good on resale.  Realtors often form their comparative market analysis (price estimate) based on homes in the neighbourhood with similar lot size, and number of rooms.  By eliminating a room, you are automatically placing your home in a lower category.  You probably don't need that walk-in closet THAT badly.
4. Over-Renovating a Basement is also not likely to get you a huge pay-back on closing.  After all, it's only a basement and your buyers may also have had specific plans for that space.  If you're not using it for your family or for income, it is often easier to just let your buyers renovate it in their own style.  Remember that this applies to OVER-renovating, so you're probably fine finishing your basement as long as you're dividing it into very specific rooms.  One possible exception is a basement apartment in certain markets... like a university town where many owners are looking at rental potential. 
5. Major Upgrades to Outdoor Living Space in Cold Climates is actually number five on their list.  This makes huge sense to me as a Canadian.  I see beautiful outdoor kitchens all the time, but I would only enjoy one in my own home from May to September each year. 

The article also reminds us to consider a specific market when assessing the resale value of a renovation.  Granite countertops are considered an upgrade almost everywhere... but in extremely cold climates like Alaska, house foundations constantly move and stone counters crack.  If you live up north, consider laminate. 

Not mentioned in the article but also worth considering are pools (especially in cold climates) since they are expensive to maintain and some parents worry about safety concerns while their children are young.  It's always best to ask your Realtor for specific information about your market.   

So which renovations consistently pay off in most markets?  Well according to the experts, the best renovations seem to be focused on the:

1. Kitchen (Not surprising.  Buyers look at kitchens.)
2. Bathrooms (Especially adding one on a main floor.)
3. Siding (To boost curb appeal.)
4. Windows (To improve energy efficiency.  Still, I'm not sure that I agree.  See below.)
5. Paint, Paint, PAINT!  This one is my own but experience tells me that it's one of the BEST things you can do before listing.  A "Fresh Coat of Paint" in a light, neutral colour can open a space and make it seem brighter and larger.

The Appraisal Institute of Canada, releases estimates of the return seen from common renovations.  Here are a few:

• Minor Kitchen Remodel (Cost: $3,000.  Expected Return: 75%-100%)
• Major Kitchen Remodel (Cost: $25,000. Expected Return: 75%-100%)
• Bathroom Remodel (Cost: $8,500. Expected Return: 75%-100%)
• Basement Remodel (Cost: $7,000. Expected Return: 50%-75%)
• Fireplace Addition (Cost: $3,000. Expected Return: 50%-75%)
• Deck Addition (Cost: $6,000. Expected Return: 50%-75%)
• Heating System Replacement (Cost: $4,000. Expected Return: 50%-80%)
• Window Replacement (Cost: $6,000. Expected Return: 50%-75%)
• Major Landscaping (Cost: $10,000. Expected Return: 25%-50%)

Related articles

• Swapping Roles from Agent to Seller: DIY Bathroom Touch Ups
• DIY Reglazing Your Sink
• Renovation Diary: What's New This Week

5 Things Living Alone Teaches Us: Could This Be The Next Housing Trend?

These days, more North Americans are living alone than ever before.  Author, Eric Klinenberg explores this new phenomenon as well as the social implications in his new novel, Going Solo.   He is quick to point out that this is not necessarily a negative trend and as opposed to examining the divorce rate, he instead equates the trend with our technological ability to be constantly connected to one another; sometimes to a fault.  "We need to make a distinction between living alone and being alone," says Klinenberg.  He says that many people who live alone often spend more time socializing with friends than people who are married, although I suspect this can be said of most single people who live with roommates as well.

The reasons for this trend aren't difficult to see.  People can afford to live alone now; women are entering the housing market in record numbers; social networking sites help to prevent loneliness; and people today tend to focus on their careers and get married later than their grandparents. 

I have been lucky enough to have had the opportunity to live in a variety of situations before Corey and I moved in together and I was glad for the things I learned about myself when I lived alone.  While I'm happier living with Corey, I wouldn't trade those experiences for the world.  Here are the top 5 things I learned:

1.  I am more independent than I had expected.  I loved the feeling of pride I had when I lived by myself and everything was mine.  I loved not sharing.  I loved that when I wanted to roughly sew scraps of fabric together to make some ugly drapes, nobody said anything!  This was an important time for me to learn about the things I liked.

2.  I don't get lonely.  I can spend hours in the evenings just reading and I love coming home to peace and quiet.  Living alone forced me to schedule proper time with friends and it also reminded me that I enjoy my own company.  I also enjoyed the freedom of not being expected home at a certain time.  I found that I frequently stopped to smell the roses (or shop for shoes) on the way home from work and I never cared what time it was.

3.  I like to call my mom once a day.  This habit has continued even now that I live with Corey.  Aside from my mother, it taught me which relationships feed my soul and how important it is to nurture those relationships.

4.  I am a little messy when I'm the only person in my home.  I don't think I would ever hang up my coat except for company... or because I now live with another person and we both do it out of respect for our shared space.  We all like to think of ourselves a certain way but living on your own leaves you without any excuses to hide behind.  The plus side is, since I dislike cleaning, I do not find myself tempted to use it to procrastinate other things.

5.  I can survive a crisis.  In my time living alone, I've lost my keys; been followed home by a scary stranger; taken care of myself when I had the flu and even survived a bad case of appendicitis.  Although the latter involved my mom and brother driving me to the hospital in the middle of the night, it's nice to know that I'm up to most challenges.  Seriously, there was something very empowering about knowing that if something went wrong from a blown fuse to a fever, I (with the help of a bag of spare fuses or a bottle of Asprin) had it under control.

So how many of us are living the solo dream?  Klinenberg says that recent stats show us that 28% of U.S. households are one-person homes.  When compared with less than 10% in 1950, this certainly seems to be a trend.  It is also interesting to note that in busy, hyperconnected Manhattan, as many as 1 in 2 dwellings are inhabited by only one person. 

What does this mean for the real estate market?  Well, I've been wondering too and I believe in the years to come, there will be more published about this trend and how it effects real estate.  I believe condos may continue to be popular due to their size, cost and ease of maintenance but I also think we'll begin to see more and more cost effective micro condos.  I suspect, these smaller units in the city core will be more popular in the future.  

If the concept of micro condos and micro lofts sounds extreme to you, bear in mind that according to a recent National Post article, between 2011 and 2012, the average price per square foot of a GTA high-rise condo increased by 2% while the average size of the units has decreased by 16%.  If we look back to 2009, it seems that units in new GTA builds are roughly 100 square feet smaller now.  While I wouldn't call 800 square feet "micro" by any standard, the 350-400 square foot studios are not far off.

What have you learned from living alone?

Related articles

• Going Solo: the Extraordinary Rise and Surprising Appeal of Living Alone by Eric Klinenberg: review
• Step by Step: Simple Ways to Start Creating Your Own Happiness at Home

Is There Price-Fixing in the Building Industry?

 

Those of us who live in Toronto already know that the new home construction industry is booming.  Aside from bungalows in older neighbourhoods being torn down to make room for larger homes with granite counters and ensuite master baths, in seems like we're always hearing about a new development sprouting up in a space we weren't even aware existed!  It would seem that with all the new construction companies which have materialized to deal with this extra demand, consumers would have some ability to shop around, right?  After all, this is Toronto, not some one horse town with only one local construction company... RIGHT??

This morning, CBC News published an article about alleged price-fixing in new home construction industry, specifically between up to 10 large companies that form moulds and pour the foundation in the basements of new, low-rise homes.  According to the article, some of the larger companies have fixed prices, made a deal not to compete and attempted to "stifle" their smaller competitors.  They allegedly met or spoke regarding prices and pressured smaller companies who were undercutting them.

As a Realtor, I happen to believe that the Competition Bureau, while necessary, can be a little high-handed and impractical at times.  Still, if this is true, it could have huge implications for the new home construction industry.  Have builders (and, by proxy, buyers) been overpaying for new homes since 1997?  What does this mean for the future price of construction in the GTA?

I must however, also look at the other side and I would want a few questions answered before solidifying my opinion:

How do they know it is true price fixing?  It is normal for members of a union to know one another, even if they work for different companies.  Is there actual evidence of conversations discussing price-fixing or is the Competition Bureau inferring this for documentation provided by one man who is connected to the accused parties?  In my opinion, discussing work and suppliers with colleagues is not a crime.  After all, don't we all want to know what our competitors are charging and if they can offer any professional advice?  In real estate, I maintain professional relationships with many of my colleagues.  We offer one another advice and support.  I have found many of my colleagues in the real estate industry to be honest, bright and hard-working.  Do these professional relationships constitute a grounds to investigate us for price-fixing?  What if we all happened to charge a similar price for providing top service within our industry and agreed not to poach clients from each other?  As you can see, it's a slippery slope and a grey area.  These rules are intended to protect the consumer, not to punish needlessly.

Another point to look at further is whether the smaller companies who are being "stifled" are also in the union or are they non-union companies?  Non-union companies can be very good companies but they can also choose not to pay their employees fairly or insist on maximum shift lengths to ensure safety.  They may not have the same level of training and I would wonder whether they were giving low bids and then inflating the tab afterwards.  If this were the case, I would find it difficult to blame the larger companies for pressuring them.  In an industry where your client/customer may not be aware of the full scope of your work, a rival who manipulates the truth or over sells their wares can be dangerous.

Still, baring some great answers to these questions, it would seem that these companies are in hot water and perhaps rightfully so.  I look forward to learning the details and watching how this impacts the construction industry.  For private owners arranging building services, we may see lowered costs but I suspect the builders will still sell their homes at the same prices since they are determined by overall demand in the housing market and neighbourhood sales.

Why You Should Care About Toronto Land Transfer Tax.

You may have already heard that Toronto's Land Transfer Tax (LTT) has been subject of considerable controversy.  For those of you who aren't sure what it is or what impact it plays on their real estate purchase, here's a little background.

Roughly translated, LTT is a tax imposed by the government and paid by the purchaser of a property.  Of course, we have tax breaks for many first time buyers but it is important to remember that the tax is calculated based on the purchase price of the property.  This minor detail makes a large difference to a family who has sold their condo for $400,000 and purchased a $900,000 house.  They will owe LTT on the $900,000 house, and in Toronto, they essentially have to pay twice.

How much is it?  This is a question I am asked frequently by clients.  It's actually not a mystery, as many people think although seeking legal advice is always best since there are exceptions.  The tax rates are shown below:


Provincial LTT

Amounts up to and including $55,000 -0.5 %
Amounts exceeding $55,000 up to and including $250,000 - 1.0 %
Amounts exceeding $250,000 and up to and including $400,000 - 1.5 %
Amounts exceeding $400,000 where the land contains one or two single family residences - 2.0 %


Municipal LTT

Single Family Residences containing one or two units:
Amounts up to and including $55,000 - 0.5 %
Amounts exceeding $55,000 up to and including $400,000 - 1.0 %
Amounts exceeding $400,000 where the land contains one or two single family residences - 2.0 %

All other Toronto Property:
Amounts up to and including $55,000 - 0.5 %
Amounts exceeding $55,000 up to and including $400,000 - 1.0 %
Amounts exceeding $400,000 up to and including $40,000,000 - 1.5 %
Amounts exceeding $40,000,000 - 1.0 %


In case you missed it, this means that when we buy property in Toronto, we essentially double our LTT.  This means that if you purchase a $500,000 home in Toronto, you can expect to spend about $12,200 on tax and if you purchase a $1,000,000 home, you can expect to spend about $32,200! We are the only city in Ontario subjected to this excessive taxation and it is simply unfair. 

The Toronto Real Estate Board has initiated a  Let's Get This Right, Toronto campaign to repeal this unjust tax.  Their two step approach suggests removal of the tax and better budget planning for the government.  Please visit their website to learn more and find out how you can help the cause with a simple email or letter or even just by sharing the site on social media. 

I have had clients who have said that the LTT played into their decision to guide our search to the suburbs but remember, this is not just a Toronto problem.  While city dwellers are paying the tax, long term consequences such as fewer people moving to the city (a lack of demand) could impact neighbouring housing markets as well. 

We're called "Toronto The Good" and we are generally fair.  We say "please" and "thank you," we give up our seats on the subway if we see a pregnant woman, we don't want a casino in our backyard.  We're practically a few steps away from prohibition... Okay, maybe not quite.  Still, we expect our taxes to be based on some level of fairness and we don't appreciate being treated like fools.  We're polite, not docile!  Let's do our part to keep Toronto affordable!

Why A Moderating Market Should Make Us Smile!

For those who take the headlines at face value, the real estate market has undergone an absolute roller coaster in the past few months.  We've been hearing threats of unsustainable growth and a bubble that's ready to pop, unscrupulous sellers and their agents who have manipulated bidding wars to extreme heights and now... Eeek, it seems that the prices are falling. 

In reality, home sales typically slow in the summer likely due to a number of factors, such as the sticky weather, family vacations and the fact that very few people want to move during the first few weeks of the school year.  Add to that the new mortgage rules and we are seeing the market moderate a little- Something those of us in the business have been expecting to happen eventually.  Far from a crash, a bit of equalizing could be excellent news for the market.

The Globe And Mail ran a great article this week which outlined five great reasons why a small decline in house prices could be very good news.  Topping the list is the fact that this may give many first time buyers who have been discouraged by the number of multiple offer scenarios last spring, a chance to finally break into the market.    Also on the list was the suggestion that this could lead to more rational transactions and negotiations.  Without an auction mentality, it is easy to reason that more buyers will feel good about their purchases in the years to come.

Our housing market is still strong and steady, as is our economy.  If housing prices see a small correction overall, it will likely increase overall confidence in our market and subsequently long-term strength.

Is Toronto Real Estate a Good Investment Right Now?

Between all the headlines stirring fear of a bubble that's doomed to burst and soaring house prices, some potential investors are wondering if now is the right time to buy.  In fact, a recent article in Maclean's magazine which claimed that Canada looks like the US before their housing market crashed has actually spawned some more balanced perspectives to surface.  One such article in the Financial Post, examines some of the Maclean's headlines from 2007 to present which all seem to warn of imminent Canadian housing market collapse.  It's actually quite a good read.  In the end, we need to accept that danger and doom tends to see newspapers and magazines better than headlines reading "Clear Skies and Smooth Sailing Ahead" and it is really up to the consumer to find a market professional whom they trust and conduct their own research as well.

With interest rates so low and bound to eventually increase, some buyers are looking for homes which would provide them the option of renting a floor for extra income.  While not a bad idea, research into the Residential Tenancies Act as well as local zoning laws and addressing questions to a trusted real estate professional are all advisable. 

In a recent Fincial Post article, the writer, Fabio Campanella urges buyers to consider their own financial situations over market conditions when assessing whether it is a good time to buy.  The most successful investors purchase properties which they can afford to hold onto until market conditions dictate the timing is right for them to sell.  In contrast, investors who spread themselves too thin by investing in multiple properties and stretching their means, are more likely to be forced to sell if conditions or their situation were to change.  Campanella writes:

"If the Toronto residential market is used as a barometer, we can see that residential real estate has treated us quite well over the past 20 years. During the period from 1992 to 2011, the average sale price for a home in Toronto increased from $214,971 to $465,412 according to the Toronto Real Estate Board (TREB)."
He calculates a ROI based on an investor putting 25% down and finding a tenant whos payments cover only basic operating costs like interest payments (not principal) on their mortgage, taxes and maintenance.  The results are impressive... especially when compared with those of the TSX. 

He even addresses investors' fears of buying just before a dip in the market by looking back at the shattering crash in 1990:

"In fact, even if you were to have purchased a property at the bull market peak just before the infamous GTA real estate crash of 1990, you would still have achieved an 8.94% ROI if you held the property with a decent tenant until 2008 even though the value of your investment would have dropped by 25% over the first four years."

Questions regarding the comparison between real estate and stocks are common although, they are really like apples vs. oranges.  First of all, we cannot live in our stocks, enjoy our families, decorate or garden or any of the other things we associate with a home.  We need to live somewhere and we so seldom consider what our monthly payments would be as renters when considering our home expenses.  Finally, unless you hold an important position with the company of which you own stocks, you do not have much control over your stock investment (aside from deciding to sell) whereas with real estate we can upgrade, renovate and stage to our heart's content. 

Still, real estate seems to win the comparison as seen by the chart (above, right) which was published on a property inventment company's website.  While our stocks are still recovering from the downturn in 2008, the real estate market only experienced a minor bump in the road.

All in all, while specific advice should always be sought, it appears that real estate is still a solid investment for Canadians.

We are Women Hear us Roar... And Watch us Enter the Real Estate Market in Record Numbers!

With RBC's 19th annual home ownership poll showing us that women are more likely than men to be first-time buyers in the next two years, it seems that Sandra Rinomato's new show, Buy Herself premiered at the perfect time.

Like men, women looking to purchase their first home prioritize down payment, job security and readiness at the top their list of concerns although an interesting difference between the genders crops up where rick tolerance is concerned, with only 16% of women (versus 25% of men) willing to take on a variable rate mortgage.

Rinomato has already seen success with her show Property Virgins and I'm interested (both as a real estate agent and as a woman who purchased my first home on my own) to see how she deals with the unique concerns that many single women have in terms of security, a single income and many other factors.  I'm also wondering how they'll inject drama into the show without couples disagreeing on which property to buy... Perhaps we'll see some crazy characters or overly involved parents.  After all, it is television first and reality second!

The Big Four: How Are Toronto's Newest Luxury Condos Shaping Up and Why is Trump's Venture Trailing the Group?

We've heard them called Caviar Condos and right now, Toronto has four of them.  With Residences at the Ritz-Carlton and Trump International Hotel and Tower open and Four Seasons Private Residences and Living Shangri-La both scheduled to open this summer, many are wondering exactly who is buying these 1 million to 28 million dollar residences attached to luxury hotels and whether there can possibly be a demand for over one thousand of these units hitting the market within a year.

Toronto Life recently featured a fun article comparing these luxury developments in terms of percentage of units sold as well as some of the challenges these developers have been facing.  The Four Seasons seems to be the hands down winner, with around 90% of the units sold and stories of some early investors who have already sold their units (over half a decade later) for nearly double what they paid.  Second place seems to go to the Ritz with over 90% of units sold.  The difficulty now is that the 20 units listed for resale could prove difficult for the builder to sell their remaining inventory.  Third place goes to Living Shangri-La with around 85% of their units sold with Trump trailing with only 40% of residential units sold and 80% of all units.

 This news about Trump Tower shouldn't surprise anyone who has been following some of the bad press this residence has been receiving.  It seems that while the hotel condos are selling (certainly faster than the residences) many buyers have encountered problems with financing due to the different rules applied to commercial properties.  A few buyers have so little confidence in the project that they are even attempting to break their contracts or walk away from their significant deposits.  Not only can property taxes be much higher for commercial properties but most lenders require the bar to be set higher in order to qualify a commercial buyer.  For me, this is just a shame.  I like to see DT thrive and I never miss an episode of The Apprentice.  Perhaps this will just mean we'll be seeing this real estate mogul in Toronto more frequently as he attempts some damage control.

Luckily, not everyone feels pessimistic and our luxury condo market seems to be an attractive investment for foreign buyers.  While it is difficult to obtain statistics on foreign investors, Janice Fox, the director of sales at The Four Seasons estimates between 30% and 40% of sales have been to international buyers.  In fact, The Four Seasons enjoyed a record setting sale last year of a 28 million dollar unit to a foreign family with plans to move here.

This optimism is also shared by many industry experts here in Toronto.  Oliver Beumeister, a real estate agent purchased a unit in one of these luxury developments five months ago and, according to a Reuters article, his plan is to wait until the surplus of units has been sold off in about four years and to then sell his unit for a 20% profit.  Not bad.

Is Buying U.S. Real Estate as Easy as it Sounds?

A recent blog post on Condo.ca discusses a prospect many of us have probably contemplated lately: looking for an investment property South of the border.  For Torontonians and Canadians in general, the past few years have certainly seemed like an ideal time to invest in the American housing market and for most of us, the thought evokes an image of a sunny little pied-a-terre to escape to during our chilly winter months.  In fact, with all the stories of Florida condos priced so low they could practically be purchased on a credit card, it may be surprising that many Canadians are straying from the sunbelt and some are even opening their wallets wide enough to purchase in the luxury market!

I find it reassuring that, while our workout habits may suffer on vacation, our national conservative attitude towards mortgage debt seems too deeply ingrained for a south-of-the-border lapse.  This is evident by the fact that 9 in 10 Canadians are paying for their U.S. properties in cash.

While many Canadians have already purchased vacation or investment properties, for those who are looking to take the plunge, here are a few factors to consider:

Consider whether you intend to rent out your property while you're not using it and have a frank discussion with a trusted real estate professional regarding the challenges and benefits to being a landlord. Royal LePage just released the results of our 2012 Recreational Property Survey and we know that while 51% of Canadians intending on purchasing a recreational property within the next five years would consider renting it to offset ownership costs, 83% of those who currently own vacation properties do not actually do this.  

Consider asking your own real estate agent for a referral to an agent who practices in the U.S.  Many of us attend international networking events regularly and seek out colleagues with similar professional characteristics who would provide our clients with the same level of service that we would at home.

Speak with a lawyer!  I cannot stress this point enough.  Not only are there taxation rules to be aware of but the landlord and tenant laws (should you plan to rent) can vary widely.

The main point here is to do your research.  Real estate in the US may be cheaper than it is at home but it is still a large investment.